Alistair Darling was braced last night for heavy job losses at Northern Rock in the coming months as the government came under pressure from the European commission, UK high street banks, the company's shareholders, and trade unions over the nationalisation of the Newcastle-based lender.

While fending off Conservative calls for his sacking, the chancellor accepted that the Treasury's rescue plan would fall foul of Europe's strict rules on state aid unless the new management team reduced the size of Northern Rock's business.

Ron Sandler, the new chairman of Northern Rock, told staff yesterday that the bank would remain in state hands for several years but would shrink in size after its rapid expansion in the past decade. Ministers are resigned to the bank still being in state hands at the time of the next election but Darling sought to prevent Labour being blamed for future job losses by stressing repeatedly yesterday that it would be run at arms' length from Whitehall. The chancellor insisted that the nationalisation plan - due to be rushed through parliament by the end of the week - would meet European criteria. Treasury sources said this would leave Northern Rock's high street rivals with no reason to complain about unfair competition.

Ministers are prepared, however, to face down threats of a legal challenge from Northern Rock's shareholders, who said yesterday that the government's plan for a temporary period of state ownership infringed their human rights.

Darling made it clear that he did not expect existing shareholders to gain any compensation, pointing out the company would have gone bust but for the Bank of England's guarantee. Shares in the mortgage lender were suspended from stockmarket dealings yesterday. They closed on Friday at 90p, valuing the company at around £380m. A year ago it was worth more than £5bn.

Sandler has yet to reveal how many of the 6,000 jobs at Northern Rock will be axed, although there are fears that as many as half will need to go initially. The union Unite, the largest single donor to the Labour party, yesterday urged the government to strengthen the legislation for public ownership to ensure that there are no compulsory redundancies.

One of Sandler's first appointments to the new board was Tom Scholar, a senior member of Treasury staff who was formerly Gordon Brown's chief of staff. He will probably be the chancellor's eyes and ears on the board.

With strong backing from the prime minister yesterday, Darling appeared to have withstood the immediate political fallout from the government's decision to admit failure in its search for a private buyer. The government's financial adviser, Goldman Sachs, is understood to have told Darling shortly after last September's run on Northern Rock branches that nationalisation was the only alternative to administration.

Treasury chief secretary, Yvette Cooper, refused to confirm reports that taxpayers faced a £100m bill for advice on the crisis from City lawyers and bankers.

However, she defended the government's need to take "serious legal advice" and accepted that large sums would be indirectly borne by the public purse through Northern Rock.

Speaking at his monthly press conference yesterday, Brown rejected Tory accusations of dithering, arguing the right decisions had been taken at the right time. He said the government had protected depositors' savings, prevented the bank's problems spreading to the rest of the financial sector, and had been right to spend months seeking a private buyer.

"We have lost nothing by doing so, we have lost no taxpayers' money by doing so, we have not had to put further capitalisation into Northern Rock, so it was right to look at the options available to us."

The shadow chancellor, George Osborne, said Darling was "a dead man walking", but the Tories were accused by both Labour and the Liberal Democrats of having no coherent plan for Northern Rock.

The high street banks were seeking reassurance from the government that a nationalised rival will not leave them disadvantaged in the search for savers.

Sandler fanned their fears by saying he wanted to return the bank to the private sector "as a vibrant, thriving enterprise, and, of course, repaying the taxpayer". He made it clear that the bank would "compete vigorously" for business.

"We will be looking very closely at how this thing looks competitively," said one senior banker, who said opinions had been voiced to Darling. The chancellor said he was "very aware of the banks' concerns and I want to be fair by them".

Treasury sources said the UK had campaigned for tough rules on state aid to prevent unfair competition. "Clearly the business plan that Ron Sandler puts together and that we put to the commission will abide by the rules on state aid."

The government has until March 17 to convert its current bailout into restructuring aid under EU rules. "This requires the company to be restored to viability so it can survive in the future without any further injections of public money," said a spokesman for Neelie Kroes, the competition commissioner.

Competition lawyers said Kroes was likely to be extremely tough, but will realise the highly sensitive political issues involved.